Micron: Raymond James Upbeat Despite Possible FYQ1 Miss

By Tiernan Ray

Raymond James chip analyst Hans Mosesmann today reiterated a Strong Buy rating on shares of DRAM and NAND memory chip maker Micron Technology (MU), writing that he thinks the company can make his revenue number of $3.67 billion for the fiscal Q1 that ended in November, and although that is slightly below consensus for $3.71 billion.

Micron is scheduled to report results on January 7th, after the closing bell.

He also thinks EPS may come in at 30 cents, versus consensus of 44 cents, mostly owing to weaker-than-expected NAND pricing, and some inventory issues:

Our below-consensus estimate is partially driven by recent NAND pricing trends, where spot pricing was down in the mid-teens through November, which is worse than management’s quarter-to-date projection of a high single-digit decline. This should be offset by continued favorable movements in DRAM, with the Hynix Wuxi fire disrupting industry supply starting in early September. Note that spot pricing through November remained favorable at +15 to 20% q/q depending on the form factor, which is above management’s quarter-to-date indication of mid-single-digit expansion. While this should drive much higher margins (all else equal), Elpida inventory digestion (marked to market at the time of the acquisition) should have a ~310 bp impact on consolidated gross margins ($110 – $120 million total). Thus, we believe our 28% gross margin estimate is much more reasonable relative to consensus of 30.9%, although it remains unclear whether consensus estimates (which range from 23% to 41%) includes the Elpida inventory digestion. Thus, we suspect some confusion as it relates to “pro forma” EPS, but feel comfortable that the reported figure will be above our estimate of $0.30 (consensus is $0.44).

Mosesmann opines the company will forecast Q2 to see “modest q/q DRAM bit growth” and “relatively normal mid-single-digits ASP declines for NAND and modest growth in DRAM.”

Although the stock is up 236% this year, “recent confusion regarding new “capacity” for Hynix has caused an 8% correction from the peak earlier this month, and offers an attractive entry point in our view,” he concludes.

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There are 3 comments

DECEMBER 31, 2013 7:40 P.M.

PS99 wrote:

It does not appear that product pricing and cogs were tiered properly. MU's mix is toward the higher end of complexity and margin. NAND pricing levels published were for older "clean-house" types as many more informed writers in SA have noted. Inventory market to market need a write-up as well which should have been deferred and used as offset as this inventory is sold ... thus no material impact. Anyone ask the CPA about this?

JANUARY 1, 2014 2:05 P.M.

HangLai wrote:

It looks like Hans Mosesmann could be wrong in his prediction for MU, based on last quarterly earning conference call by MU executives, they projected DRAM will increase but NAND will decrease slightly, but not to the extent that the earning will drop down to 30c/share from predicted 44c/share; that is the drop down is significant. We will know in a few days when MU report its earning. This also will provide a hint as to how good ( how knowledgeable) are these analyst’s predictions. Are their advices worth heeding? We will see soon

JANUARY 2, 2014 5:57 A.M.

David wrote:

Isn't it just coincidental, that, once again, an "analyst" has to rush out, ASAP, negative earnings forecast. And provide "figures," the basis of which are so transparently questionable, it makes this writer as equally questionable. I would consider this useless and with its own motives, and deposit it in the circular file, where it belongs. MU has never been in a better position in so many ways. Besides DRAMEXCHANGE continual upwards figures, Mosesmann predicts 2Q DRAM growth. Interestingly, as others have stated DRAM growth at least for the first half of 2014.

What about MU's supercomputer? Read about it. This will cost a fraction of what amounts to NO competition for it, and is likely to be a huge thing for MU, and, although perhaps not until 2015, simply the existence of something this revolutionary will send this stock flying upwards once the stock market "gets it." It seems many analysts don't get it, or MU in general. Or, is it that they are working for other shady forces that want this kept down? I believe it most definitely is the case.

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Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.